AMP is not on the firm legal ground it purports to be with respect to Buyer of Last Resort (BOLR) changes and its efforts to characterise the issues as straightforward should not be accepted at face value, according to a lawyer retained to represent a number of AMP advisers.
The lawyer, Dan Mackay of Melbourne-based Mackay Lawyers & Advisers, has written an analysis of the BOLR situation which is being published in Money Management and within which he states that the manner in which AMP is acting is ‘brutal’ and where advisers are at risk of losing everything, important issues of equity arise.
“The announced changes by AMP regarding BOLR have been brutal in their potential impact upon some Advisers. It is highly likely that Advisers relied upon the security of the ‘4X’ BOLR put option when they purchased their businesses or client-books, in many cases borrowing amounts based on the 4X value,” he said.
“The stark reality now, is that AMP’s unilateral revisions to the BOLR terms means Advisers may have negative equity in their businesses against their debt. Their position might be further diminished by the effect of ‘lookback’ audits, as AMP accelerates years’ worth of ‘housekeeping’ in the aftermath of the Hayne Royal Commission.”
“Often misunderstood by laypeople (and many lawyers), equity is law ‘through the looking glass’. It is not concerned with what contracts say so much as what people do and did. ‘Black letter’ gives way to consideration of ‘all the circumstances’, including circumstances specific to each Adviser. Fundamentally, equity is concerned by what is fair,” Mackay said.
“Assuming for a moment that AMP has the ‘black letter’ legal right to reduce the BOLR valuation metric from 4X to 2.5X, should it be allowed to do so?” he asked. “In considering this question, equity might ask: were Advisers induced by the promise and security of the 4X BOLR put option to buy AMP businesses, with loans from AMP Bank, at a price based on that 4X multiple?”
“If AMP says that practices are now worth less because they are riddled with compliance issues, should AMP have discovered and addressed them before a Royal Commission did? Should AMP have made these risks clearer to Advisers earlier, even if it risked lessening AMP’s profits from them? If AMP Advisers now risk losing everything because of changes to the BOLR policy, and AMP might profit from these changes, in all these circumstances, should AMP be allowed to rely on the changes to BOLR?”